Seeking debt rollover

Foreign debt rollover could mean the difference between survival and bankruptcy for most Indonesian big businesses which are reeling amid the currency turmoil, depressed stock market, credit crunch and punitively high interest rates. But such a facility has become increasingly scarce because creditors, concerned over the dire economic condition, understandably are eager to rush out of what they now see as a highly risky situation. It is now harder to convince creditors to extend financing facilities in view of the bleak economic outlook, at least within the next 18 months.

The initiative taken by the Indonesian Chamber of Commerce and Industry (Kadin) to send a team of business leaders to Washington and New York this week, on what is called a roadshow, should be seen as part of a concerted drive to assure foreign creditors of the long-term viability of their assets (funds).

Minister of Finance Mar'ie Muhammad, who a few weeks ago succeeded in convincing Japanese creditors in Tokyo to roll over their loans to Indonesian companies, lends more weight to the delegation of business tycoons by acting as the team leader. Mar'ie's participation in the business roadshow could also help remove the recent controversy over the government's stance on the private-sector's foreign debts.

The international market became confused late last month after the remark by the chamber's chairman, Aburizal Bakrie, that US$5 billion in standby loans from Singapore would be disbursed to ease the liquidity pinch of medium and big businesses. Only a few days before Aburizal's statement, made after he met with President Soeharto in Cape Town, South Africa, Mar'ie had insisted at a House hearing in Jakarta that the government would not bail out, directly or indirectly, the private sector's foreign debts which totaled $65 billion -- of which almost $10 billion will be due by March. The finance minister said the government would, however, help businesses by lobbying foreign creditors to rollover their loans to Indonesian debtors.

But businesspeople should not expect too much from the business roadshow as credit transaction is a case-by-case deal between a creditor and a debtor concluded after thorough negotiations and careful credit assessment. Moreover, the previous success in Tokyo could not be seen as an indication of another similar achievement in the United States in view of the special relationships between Indonesia and Japan. The most the team can do is brief creditors and business leaders in the two American cities on the general outlook of the economic situation and the various sectors. The business tycoons are not authorized nor competent in representing the creditworthiness of individual business debtors.

Nonetheless, the mission should be prevented from becoming simply a public relations exercise. Minister Mar'ie and his team should talk in nuts and bolts regarding the economic condition, the painful adjustments being taken and to be pursued, the short- term and long-term impacts of the adjustments.

The briefing sessions and lobbying of the American participants would be more effective if they include not only bankers but also securities analysts and researchers of credit rating agencies. The latter two groups often serve as opinion leaders for investors and creditors. They should therefore be assisted with timely, accurate and comprehensive information on our economic condition. Bankers and investors have now become much more cautious about Indonesia and other East Asian countries and are demanding more transparency and high-quality accounting.

But as we mentioned at the outset of this column, the business mission is only part, and not even the most important one, of the concerted drive needed to restore foreign confidence in the prospects of our economy.

Money, stability and confidence will not return until the government consistently takes painful steps to fix the structural problems of the economy and improves the transparency and accountability of its transactions, including those by state- owned enterprises. Foreign confidence in the business sector will return only if companies improve the integrity of their financial reports.

Foreign investors and creditors are willing to help us to weather the short-term liquidity crisis if we can convince them that the reform measures we are taking, and will implement, hold a bright future promise for the economy.